Money Matters Advice Column – Taxes

Well, that was interesting. Last week, the Chancellor Philip Hammond presented his first, and last, Autumn Statement along with the Spending Review.

His speech and the supporting documentation set out both tax and economic measures.

Our summary concentrates on the tax measures which include:

the government reaffirming the objectives to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament

reduction of the Money Purchase Annual Allowance

review of ways to build on research and development tax relief

tax and National Insurance advantages of salary sacrifice schemes to be removed

anti-avoidance measures for the VAT Flat Rate Scheme

autumn Budgets commencing in autumn 2017.

In addition the Chancellor announced the following pay and welfare measures:

National Living Wage to rise from £7.20 an hour to £7.50 from April 2017

Universal Credit taper rate to be cut from 65% to 63% from April 2017

In the March Budget, the government announced various proposals, many of which have been subject to consultation with interested parties. Draft legislation relating to many of these areas will be published on December 5 and some of the details may change as a result.

Here are some of the details of the Autumn Statement –

The personal allowance:

The personal allowance is currently £11,000. Legislation has already been enacted to increase the allowance to £11,500 for 2017/18.

Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000, which is £1 for every £2 of income above £100,000. So for 2016/17 there is no personal allowance where adjusted net income exceeds £122,000. For 2017/18 there will be no personal allowance available where adjusted net income exceeds £123,000.

Tax bands and rates:

The basic rate of tax is currently 20%. The band of income taxable at this rate is £32,000 so that the threshold at which the 40% band applies is £43,000 for those who are entitled to the full personal allowance.

Legislation has already been enacted to increase the basic rate band to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 in 2017/18 for those entitled to the full personal allowance.

The additional rate of tax of 45% remains payable on taxable income above £150,000.

The Scottish government are expected to confirm the basic rate band, personal allowance, etc which will apply to Scottish taxpayers in the Scottish Budget on 15 December 2016. The Scottish government have pledged to ‘freeze’ the current higher rate threshold in 2017/18, increasing it by no more than inflation until 2021/22.

Long term commitments to raise the personal allowance and higher rate threshold:

The Chancellor has reaffirmed the government’s objectives to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament. He also announced that once the personal allowance reaches £12,500, it will then rise in line with CPI as the higher rate threshold does, rather than in line with the National Minimum Wage.

Tax bands and rates – dividends:

Dividends received by an individual are subject to special tax rates. The first £5,000 of dividends are charged to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:

7.5% for basic rate taxpayers

32.5% for higher rate taxpayers

38.1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the £5,000 allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Many individuals do not have £5,000 of dividend income and so their dividend income is tax free irrespective of the tax rates payable on other income.

Individuals who regard themselves as basic rate taxpayers need to appreciate that all dividends received still form part of the total income of an individual. If dividends above £5,000 are received, the first £5,000 will use up some or all of the basic rate band available. The element of dividends above £5,000 which are taxable may well therefore make the individual a higher rate taxpayer with

the dividends being taxed at 32.5%.

You can find out more about the Chancellor’s Autumn Statement on our website –

http://www.clayshawbutler.com/news/autumn-statement

You can find out more about money matters on the Clay Shaw Butler website (under our news for business section) –

http://www.clayshawbutler.com/news/latest-news-for-business

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